Markets Explained

Putting a Stop to Senior Financial Abuse

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How the financial services industry is stepping up in the fight against elder financial abuse.

As senior associate for state government affairs at the Securities Industry and Financial Markets Association (SIFMA), Kyle Innes focuses on issues related to senior investor protection, particularly in the policy arena.

Kyle recently sat down with Project Invested to discuss how the financial services industry is stepping up in the fight against elder financial abuse.

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How big of a problem is elder financial abuse today and why?

It has started to get a lot of attention from the press, regulators and lawmakers relatively recently, but this has been a major issue for a very long time.  The securities industry has been very actively working on this issue for almost a decade, since even before the first baby boomers started to age into retirement.

We also expect senior financial exploitation to increase in the coming years, as we currently have 10,000 individuals turning 65 every day through the year 2030. You couple that with the fact that seniors tend to have assets they’ve built up over a lifetime, and they are an extremely targeted population.

On top of that, the newest research coming out on cognitive decline shows that a good portion of otherwise high-functioning adults will develop a vulnerability to exploitation at some point in their lives – and that this can be exacerbated by common health problems like high blood pressure or diabetes, and you’re looking at a perfect storm.

There’s also a lot that’s not understood yet, and accurate metrics don’t really exist. One report has estimated that only one in 44 cases of senior financial fraud is ever reported to the authorities. We also have another that says, in cases reported in newspapers and other media, $2.9 billion is lost annually.

So if people are losing almost $3 billion in just the cases that newspapers pick up, and you have 1 in 44 cases getting reported to the authorities, how big is that loss really? Add onto that the non-financial losses, such as added stress, deteriorating health or even difficulties paying for healthcare or housing as a result of the lost money, and then you add loss of independence and increased reliance on state programs due to that lost income, and the impact of these crimes on both individuals and our economy as a whole is staggering.

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Your focus is on state government affairs. What are examples of effective state level policy interventions that would help combat elder financial abuse?

The biggest push at the state level is what are called “report and hold” laws. In 2010, we supported Washington State in enacting the first report and hold law, and these laws give broker-dealer firms a way to reach out to state securities regulators or the appropriate parties in a given jurisdiction to investigate exploitation. They also allow the broker-dealer to put a hold on a transaction to permit time for an investigation to take place. Right now there are about six laws in place around the country.

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So the goal of the report and hold laws is to stop the damage from fraud before it can occur by putting a hold on the flow of money?

Right. Once money leaves an account, most of the time it’s gone. Sometimes you’re able to recover some funds, but it’s not too often. So we really want to be able to stop the loss from happening at the very beginning.

And it’s not just about stopping the money from leaving the account, it’s about stopping the liquidation of assets which can sometimes have equally serious consequences.

There was a story about a woman who wanted to sell $200,000 of her investments in order to pay advance taxes on lottery winnings to a country she’d never been to – it was clearly a scam. Because they were required to under the laws of that state, the broker dealer liquidated the investments, but they were able to stop it from leaving the bank account. It’s great that they were able to stop it from leaving the account, but that liquidation had enormous tax and investment consequences, and it was a harm to her. So these report and hold laws are a first step to stop the problem as early as possible.

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What other state-level policy changes would help?

One of the things we’re gearing up to focus on now is the closing of feedback loops. What happens is that when financial institutions report these cases to investigating agencies, such as adult protective services, state securities commission or law enforcement, they can’t find out what happens.  There are both legal barriers and a clear reticence on the part of the investigative agencies to reach back out to the financial institutions. However, if a financial institution can’t find out what’s going on from the folks who are investigating these cases, and have investigative authority far beyond what a broker-dealer is capable of, that is making it that much harder for the broker-dealer to take the appropriate action in that situation and protect their client.

In some cases, that’s because of state laws; in some cases that’s because of policy; in some cases it’s because of federal laws. But either way, cooperation and coordination needs to happen between the financial industry and the investigative agencies. So we’re looking to break down those barriers to communication.

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What about at the federal level—how can Congress and the executive branch help to strengthen senior protections against abuse and exploitation?

We have taken the first step in the U.S. Congress, which was the introduction of the Senior$afe Act, which passed the House in July and is currently in the Senate. What this does is give broker-dealers specific legal protections for reporting fraud and exploitation to investigative agencies and other groups. That’s a good first step that can be built on. We are also supporting the Elder Abuse Prevention and Prosecution Act, which supports good data collection procedures, increases investigative capacity and permits the creation of interstate cooperative groups to prevent elder abuse.  This is another good piece of legislation we’d like to see enacted.

We are also advocating for single-portal reporting. Right now, it’s not always easy to figure out who you’re supposed to report to when you have a case of financial exploitation. In Florida, for example, there are three different agencies, at least, that have different jurisdiction over different types of financial exploitation. So what we’d love to see set up is one place that everyone could report, and then that report is routed to the agencies that have the capacity, jurisdiction and ability to investigate.

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What is SIFMA doing to raise awareness of senior financial abuse?

We’ve had a number of events to educate our folks in the industry. We had a joint event with FINRA in Washington, D.C., in October, and we’re hosting a number of regional events to give industry professionals a crash course in senior investor issues.

We’ve also prepared a draft toolkit for firms and advisors, which includes a number of resources we’ve collected, developed and organized into a single unified package. We worked with a number of our member firms, scientists and academic experts to put these things together.

For example, there’s a model trusted contact authorization form that we’re releasing. We have a client protection playbook that is a 60-page collection highlighting the key warning signs of nearly two dozen scams. We’re putting out one of the most comprehensive collection of red flags of cognitive decline and financial exploitation that’s currently available. There’s also a guide for caregivers.

The idea is that, for SIFMA, our member firms and advisors are our best distribution channel to reach individual investors. So if we can get it into their hands, they can get it into their clients’ hands.

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This seems like a very difficult issue to combat. Can we be optimistic we’re making progress?

Absolutely! You know the saying, where there’s a will there’s a way. There’s a lot of will around this issue…there’s a lot of will. We’ve made a lot of progress in a number of states, and there are some opportunities we think that could strengthen the investor protection laws further. The science surrounding this issue is also developing at a relatively quick pace. The good news is that we’ve already taken massive steps forward, and it’s leaps and bounds from where this issue was in 2000.